IMF Raises Serious Objections Against Several Govt Schemes

The breaching of certain structural benchmarks, including the announcement of the tax amnesty scheme, the Prime Minister’s (PM’s) Relief Package, and currency fluctuations, Pakistan requires a waiver from the Executive Board of the International Monetary Fund (IMF) for the breaching of the agreed-upon structural benchmarks during the last review for the approval of ongoing review and the next tranche of $960 million to complete the ongoing Seventh Review meeting in Islamabad.

Pakistan and the International Monetary Fund (IMF) convened the second round of talks in the review at the Ministry of Finance today. The talks are being held virtually via online links, and discussions on the Policy Level are in continuation of the Technical Level talks that ended last week.

Sources privy to developments revealed that the deliberations are focused on the country’s macroeconomic situation amid the recent relief package that was announced by Prime Minister (PM) Imran Khan, and the Ukraine and Russia crisis.

They revealed that the IMF raised serious objections against the tax amnesty scheme, the PM’s Relief Package, and other steps today, in response to which Pakistan affirmed it will not repeat the same.

The IMF has asked Pakistan to increase the discount rate, allow the free movement of the exchange rate, slash the Kamyab Pakistan Program (KPP), and reverse relief package measures to align with prudent financial management, the sources said.

Officials involved in the development told ProPakistani that the success of Pakistan’s negotiations with the IMF depends on what its political leadership decides in the recently moved ‘No Confidence’ motion against PM Khan.

“If the current political unrest ends, the talks are likely to be successful. Otherwise, the IMF may wait for the new political setup to complete the review,” the source said.

The government had announced a relief package for decreased prices of petrol, diesel, and electricity, besides granting tax amnesty to the industrial sector, a couple of weeks ago. It has also enhanced the Kamyab Pakistan Program up to Rs. 407 billion, which is also a matter of concern for the IMF.

The latter also has reservations about the widening of the current account and budget deficits. Pakistan and the IMF had agreed to restrict the current account deficit to $12.2 billion for the current fiscal year. Contrary to the target, the current account deficit has ballooned to $11.6 billion so far. The budget deficit is also likely to cross Rs. 4.3 trillion, which will be Rs. 320 billion higher than the target despite an additional revenue of Rs. 360 billion through the mini budget of Rs. 200 billion by squeezing the development budget.

Interest payments, COVID-19 related expenditures, the energy subsidy, and other social safety measures are the main contributors to the rising budget deficit, government sources believe.

The Washington D.C.-based lending agency has also concerns about the pace of the privatization process by Pakistani authorities. Pakistan had estimated more than Rs.200 billion revenues from the privatization proceeds in the budget but could not get a single rupee on this front. This has decreased the estimated income and increased the government expenditure for running the loss-making Public Sector Enterprises (PSEs).

Positivity was also observed in the IMF’s official comments, and its Representative in Pakistan said, “Pakistan and [the] IMF will continue to seek ways and means to promote macroeconomic stability in light of the recent government packages”.

She termed the concerns as “developments,” which indicates the IMF’s soft approach towards Pakistan, as desired by Minister Tarin in a recent press conference.

The policy level talks are expected to be concluded on Wednesday.

The Minister for Finance, Shaukat Tarin, will lead the Pakistani delegation to convince the IMF team on the above-mentioned issues.

The IMF Board is likely to meet at the end of next month if the ongoing talks end successfully at the staff level, sources said.

Pakistan and the IMF had signed the Extended Fund Facility (EFF) for $6 billion in 2019, and it will end in September. Three reviews, including the current performance review, remain until the end of the agreement.